During a week that saw swings of 20 cents -- higher on Monday and lower on Wednesday -- February natural gas futures on Friday ended up closing quietly at $4.422, down 1.2 cents from Thursday's finish but 1.7 cents higher than the previous week's close.
Steve Blair, a broker with Rafferty Technical Research in New York, said the market has been hard to call as of late, adding that rapid fluctuations in near-term weather forecasts are helping to rob the momentum of a breakout to the upside. On his own charts, Blair told NGI he has highlighted $4.447 as an important technical price level. "After we broke below $4.447 on Thursday, the bull move was stunted a bit," he said. "Then the bulls received further discouragement with Friday's inability to close above the important price point.
"Natural gas futures have really been all over the place this week. At one point early on it looked like this thing was well on its way to $5, but that disappeared on Wednesday. I have a feeling the funds sold into this rally. I also think the squirrelly weather forecasts of the last week played a large part. On Monday and Tuesday, a lot of the near-term forecasts were displaying dark blue covering most of the country. As we rolled into Wednesday, while there was still a lot of blue on the map, it wasn't the dark, dark blue that signified well-below-normal temperatures. Especially down in Texas, some of the coldest predictions were moderated as the week rolled on. In order to get this market really moving to the upside, I've said we'll need to get some really cold weather down in Texas so that the Producing Region is forced to take a big draw on storage."
While the near-term forecast has moderated, Blair noted that a number of forecasters are still predicting a really cold streak to hit during the middle of the month. "If we get the cold that has been forecast, $5 gas certainly becomes part of the conversation again."
While moderated a bit from earlier in the week, the near-term weather outlook still favors the bulls. Forecaster WSI Corp. of Andover, MA, in its six- to 10-day outlook shows below- and much below-normal temperatures for the U.S. north and east of a broad arc extending from Austin, TX, to central Wyoming to the Oregon coast. "Below- and much below-normal temperatures are forecast over the northwestern U.S. and most locations east of the Front Range. Anomalies as cold as 20 degrees below normal are anticipated over the Northern Plains," WSI said. It added that above- and much above-normal temperatures were expected in the West and cautioned that "temperatures may trend warmer over most locations south and east of Minneapolis than currently forecast. Medium-range models advertise the storm track will shift into the Midwest late next week and depict a brief moderation in cold in [the] next weekend."
Economy watchers were not greatly impressed by the 8:30 a.m. EST Friday report by the Labor Department showing improved economic conditions. In its December Employment Report it said non-farm payrolls increased by 103,000, below market expectations of 160,000 but still an improvement over November's 39,000. The unemployment rate dropped to 9.4% from 9.8% in November. Gains in employment, while not immediately transferable to increased use of natural gas, do lay the groundwork for improving industrial demand. The department said gains in employment were concentrated in leisure, hospitality and health care, with little change in other industries.
Top analysts see weather and weather forecasts continuing to be the primary market drivers. "[W]e will look for updates to the temperature views to continue to drive pricing. Most weather models extending out through the third week of January continue to favor below-normal temperatures across most of the northern half of the U.S.," said Jim Ritterbusch of Ritterbusch and Associates. "However, the larger deviations from normal appear concentrated within the northern plains region with major metropolitan areas expected to realize only moderate cold conditions. This would appear to provide some explanation behind the market's inability to sustain upside price progress."
©Copyright 2011 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.